Wall Street executive Steve Rattner had a column (8/14/15) in the New York Times in which he derided Donald Trump’s economics by minimizing the impact of trade on the labor market. While much of Trump’s economics undoubtedly deserve derision, Rattner is wrong in minimizing the impact that trade has had on the plight of workers.
Rattner tells readers:
In Mr. Trump’s mind (although not in the minds of serious economists), [the trade deficit is] why we’ve lost 5 million manufacturing jobs since 2000.
The Chinese are certainly protectionists, but a shift in manufacturing jobs was inevitable. For centuries, as countries have developed, the locus of jobs has shifted based on comparative advantage.
Moreover, many of those manufacturing jobs weren’t lost to other countries but to growing efficiency, just as employment in agriculture in the United States has fallen even as output has risen.
No policies could reverse tectonic forces of this magnitude, and in suggesting that there are remedies, Mr. Trump is cynically misleading the American public.
There are several points here that are worth correcting. First, productivity in manufacturing is not new, but the large-scale loss of manufacturing jobs is. According to the Bureau of Labor Statistics, in 1971 we had 17.2 million jobs in manufacturing. In 1997, we had 17.4 million jobs. This is in spite of the fact that there was enormous productivity growth in manufacturing over this quarter century. Manufacturing employment then fell to 13.9 million in 2007, the last year before the crash. The big difference between this decade and the prior 26 years was the explosion of the trade deficit as jobs were lost to China and other developing countries.
The fact that we would have more manufacturing jobs without the trade deficit is almost definitional. We currently are running a trade deficit of more than $500 billion a year, a bit less than 3.0 percent of GDP. Total manufacturing output is roughly $1.8 trillion, which means that if we filled the deficit entirely with increased output of manufactured goods, we would expect to see manufacturing employment rise by more than a quarter ($500 billion divided by $1,800 billion), creating more than 3 million new manufacturing jobs.
There is also a fundamental difference between the shift out of manufacturing jobs and the shift out of agricultural jobs to which Rattner refers. Workers left agricultural jobs for higher-paying, higher-productivity jobs in manufacturing. The jobs didn’t actually disappear; the workers did not want them.
This is the exact opposite of what we are seeing with manufacturing jobs. Workers are losing relatively good paying jobs in sectors like autos and steel, and are then forced to take low-pay, low-productivity jobs in the retail or restaurant sectors.
There is absolutely nothing inevitable about this process; it is happening due to a series of policy choices. First, we have structured trade to make it as easy as possible for our companies to invest in manufacturing overseas and ship their products back to the United States, thereby putting our manufacturing workers in direct competition with low-paid workers in the developing world.
Second, we have maintained or even strengthened protections for high-end professionals like doctors or lawyers, so that they are not subject to similar competition. This both protects their pay and prevents the public from enjoying the benefits of lower-cost healthcare, legal services and other professional services which would be one of the fruits of increased international trade in this sector.
Third, we have at least acquiesced in, if not actively supported, policies that have led to a seriously over-valued dollar. The result of these policies is a large and persistent trade deficit, which puts further downward pressure on the wages of those workers who have been most exposed to international competition.
So this is a story whereby trade has been a serious factor depressing the wages of large segments of the US workforce. Contrary to Rattner’s assertion that concerns about trade and jobs “lie far outside the boundaries of accepted economic thought,” many serious economists believe large parts of this story. That may not be the story that Donald Trump is telling, but he is right in arguing that our trade policies have been bad news for much of the population.
Economist Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. A version of this post originally appeared on CEPR’s blog Beat the Press (88/14/15).
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Productivity in manufacturing is not new in this country but it is new in developing countries. That means there will be loss in some manufacturing jobs to reflect new comparative advantages. But there will be a gain in other jobs such as manufacturing public consensus necessitated by ever increasing government intervention in both foreign and domestic affairs.
Thank you Dean Baker and FAIR.
Your comments about the strong dollar policy (if not actively supported, at least acquiesced) could seem to be a little stronger. Wouldn’t it be reasonable to point out that a strong dollar is good for things like bond markets – so the loss of manufacturing can be seen as one of the costs associated with the promotion of a strong financial market and ability to attract international funds?
I find it hard to believe and harder to understand how so-called “comparative advantage” applies to the current state of corporate “free trade.” I thought the doctrine indicated that when one country is better at producing a product, say, wool, than another but the other country is better at something else, like wine, then each country should concentrate on its comparative advantage to produce its product and to buy the other country’s specialty, so that both countries prosper. In the modern world, all we’re talking about is paying the lowest possible wages and the lowest expenses for things like product and workplace safety. How can the US ever win such an unfair and unfair competition? Where is our “comparative advantage” when we always lose, unless our American pmutocrats are willing to reduce their middle class fellow Americans to abject poverty? Then our middle class consumer economy is ruined because no one can afford to buy anything
Dean, all good points. Here’s another: Rattner’s claim that “employment in agriculture in the United States has fallen even as output has risen” is extremely misleading. He (intentionally?) omits all the agricultural jobs that have been outsourced to other countries via our land grabs. Yes, our (US-based) Ag companies are certainly producing more, but not here in the US.
I just heard trump in N.H. tonight blaming “our leaders” for the fact that so many jobs have left our shores for China et al; however, he didn’t get into specifics about who the leaders are, even while calling all elected politicians puppets of the donor class…
I was in computer school when America was getting rid of our own manufacturing jobs. They told me I was so special, they told me that I was one of the few worthy people who was interested in figuring out computers. They told me the undercutting of millions of Americans wages would not affect my wages because I could just find ways to work smarter! Now, I got 20 years experience, including over 10 in C#, including this year, the companies aren’t calling me anymore, this could be the last year, last year could have been the last year. Lately my education from 25 years ago is under scrutiny, arbitrary budget layoffs have accumulated so that I have 5 years and 5 jobs, each about 7 months, and what experience I have that can’t be denied can be second guessed down to nothing. They told me I was so awesome once.
Obama and the Democrats’ 2012 preservation of the Bush era tax cuts is a significant policy choice that told companies like GE it was okay to outsource jobs to make more money. Bills that were sponsored to tax companies that outsource were defeated by these Democrats. -RF.
One need not be a physicist nor from the intelligentsia to understand what has and continues to take place. Working class people the world around are being sold out by national leaders at the behest of their corporate benefactors. There is a sociopathy within the minds of those who would knowingly start unjust and unnecessary wars or withhold essential human services to people in need. The Rs and the Ds are both collaborators. Look at the past 40 years. Rs and Ds have each occupied the White House 20 of those 40 years. And if working class folks believe our own rhetoric (and there is every reason for doing so) we’ve been falling behind while the rich have become uber-wealthy.
As the old indigenous saying goes, “when you discover that you are riding a dead horse, the best strategy is to dismount.” Changing riders won’t get the job done. It is up to us to “dismount”.
Organized labor, as imperfect as it might be, has the resources and knowhow to lead us out of the barren deserts of neoliberalism/neoconservativism. Every other cockeyed idea has been tried, but the proof remains that only when unions were strong here in the U.S. did the working class fared better. It is an incontrovertible fact.
Bernie Sanders is more closely aligned with real working class ideology than any other candidate. That some labor pie cards jumped on Hillary’s bandwagon without so much as even asking their memberships their opinions is one of labor’s imperfections referenced above. But so what? Those jokers are not the union! The ranks and file are the union! It’s time to dismount and get behind someone who can speak the language of the working class – the 90% of the population that keeps America’s wheels turning.
Talking about productivity is playing according to the rules of the 1%. As far as they are concerned we will never produce enough. Forget them. The words, “life, liberty, and the pursuit of happiness” are enshrined in our Declaration of Independence. Those are our unalienable rights. Mainstream Rs and Ds have undermined that declaration. The only caucuses or groups or organizations that speak for workers are unions. Support them, strengthen them, and we’ll rescue the working class from the clutches of corporatism.
Lastly, @&*% Trump. What does he know about laboring? (As a three time loser he can, however, expound on the finer points of declaring bankruptcy.)
“There is absolutely nothing inevitable about this process; it is happening due to a series of policy choices. First, we have structured trade to make it as easy as possible for our companies to invest in manufacturing overseas and ship their products back to the United States, thereby putting our manufacturing workers in direct competition with low-paid workers in the developing world.”
Thanks Dean.
That pretty much sums it up.
Bernie Sanders doesn’t just talk about it. His voting record has consistently been anti “free” trade which allows corporations to produce in foreign countries, hire people at subsistant wages and import back into the US. Bernie adamantly opposes TTP. The only consistent candidate that isn’t bought by big money and stands up for the people. You don’t hear much about him on the TV. Watch his S.C. speech on CSAN http://www.c-span.org/video/?327669-1/senator-bernie-sanders-town-hall-meeting-south-carolina
ernest martinson, please shut up with your stupid free market zombie drivel. Read the book “Not For Sale,” if you want a look at the modern day slave trade that is the foundation for these “low wage jobs” and see that this is not competition but the erosion of human rights that ernest and his pig ilk want, as there is no competition between slaves and workers with rights when it comes to the bottom line. Slavery comes naturally to capitalism. That is why mccarthyite pigs like ernest still bring up this free market jingo from the cold war, thinking that making the, “shut up and work harder” mantra of Boxer in “Animal Farm” more eloquent makes it magically better. ernest is just another one of the pigs in “Animal Farm” at the end who are indistinguishable from the humans, symbolic of capitalists. Whether blaring socialist slogans or free market slogans, what actually matters is whether or not you actually own the means of production. ernest is simply interested in owning human beings, unless you think that less than a dollar a day in wages (that are stolen through various coercive methods by ernest and his pig ilk) and being locked up in a worker’s shack at night aren’t slave conditions.